TransCanada Corp., the company behind the controversial Keystone XL oil pipeline, said on Thursday it will buy Columbia Pipeline Group for $10.2 billion, creating one of North America's largest regulated natural gas transmission businesses.
The deal, valued at $13 billion including debt, comes months after U.S. President Barack Obama blocked the cross-border Keystone XL crude pipeline. His decision was a victory for environmentalists and a blow to TransCanada after a seven-year battle for approval.
TransCanada will offer $25.50 per share in cash for each Columbia Pipeline share, an 8.5 percent premium to the stock's Thursday close.
Columbia Pipeline shares were at $24.75 in extended trading, while TransCanada's U.S.-listed shares were down nearly 4 percent at $36.50.
Columbia Pipeline owns and operates about 15,000 miles of natural gas pipelines, connecting the U.S. Gulf Coast to the Midwest, Mid-Atlantic and Northeast United States, home to some of the country's most prolific shale gas plays.
That pipeline system will link up with TransCanada's existing assets to create a network spanning the continent.
"This acquisition represents a rare opportunity to invest in an extensive competitively positioned growing network of regulated natural gas pipeline and storage assets in the Marcellus and Utica regions of the United States," TransCanada Chief Executive Officer Russ Girling said on a conference call.
The deal will also give TransCanada a combined portfolio of C$23 billion ($17.72 billion) of secured near-term growth projects. The company said that would add to per-share earnings in the first full year of ownership and may boost its dividend growth rate of 8 to 10 percent per year.
TransCanada will finance the deal by selling its U.S. Northeast merchant power assets and a minority interest in its Mexican natural gas pipeline business. The company said it had also secured $10.3 billion of credit facilities.
The growth in TransCanada's gas pipeline business is in contrast to slow progress in building new crude oil pipelines. The company's proposed Energy East project faced a setback this month when the Quebec government filed a motion for an injunction to ensure that the pipeline complied with the province's environmental laws.
If the deal closes in the second half as expected, TransCanada will then own the general partner of Columbia Pipeline Partners LP.
Columbia Pipeline Partners, whose general partner is currently owned by Columbia Pipeline Group, will remain a publicly traded partnership, the companies said.
($1 = 1.2979 Canadian dollars)